SGX - OCBC Investment 2018-04-23: Derivatives Powered Strong 3Q

SGX - OCBC Investment 2018-04-23: Derivatives Powered Strong 3Q SINGAPORE EXCHANGE LIMITED S68.SI

SGX - Derivatives Powered Strong 3Q

  • Derivatives jumped to S$91m.
  • Dividend yield of 3.7%.
  • Raising Fair Value to S$8.22.

Above expectations 3Q 

  • Singapore Exchange (SGX) posted strong 3Q net earnings of S$100.5m, up 21.0% y-o-y and 13.7% q-o-q, and above both the street and our expectations. The positive surprise came from sharply better Derivatives Revenue which rose 20.4% y-o-y to S$90.5m. 
  • The last time Derivatives Revenue crossed the S$90m mark was in 1Q16. Since then, Derivatives Revenue has been hovering at an average of about S$78m per quarter. On the back of this, margins showed across the board improvements q-o-q and y-o-y. For example, operating margin rose from 50.0% in 2QFY18 to 53.0% in 3QFY18. 
  • Equities and Fixed Income Revenue also showed improvement this quarter, up 4.7% y-o-y and 10.6% q-o-q to S$107.9m. 
  • Operating expenses moved up, but the pace of increase was lower than the growth in operating revenue. The 5 S cents dividend will be paid on 8 May 2018, with book closure on 30 April 2018.

Management expects market activity to improve 

  • Together with a strong set of 3Q results, it is heartening to note that management is expecting market activity to improve. The group is also focusing on strengthening its partnerships and strategic alliances. 
  • Management has also retained its guidance of operating expenses of S$410m to S$420m for FY18, with technology-related capital expenditure at around S$60m to S$65m.

Upping fair value estimate to S$8.22 

  • We have raised our earnings for FY18 to account for the stronger 3Q and this brings our full year earnings projection from S$364.1m to S$371.9m.
  • Together with this, our fair value estimate moves up slightly from S$8.16 to S$8.22. SGX is offering a total return of about 12.4% (including dividend yield of 3.7%) based on the share price of S$7.56.

Carmen Lee OCBC Investment | 2018-04-23
SGX Stock Analyst Report BUY Upgrade HOLD 8.22 Up 8.160